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Posted on Tuesday, May 28, 2013

I am pleased to report that The Victory Bank continues to grow and progress, despite some challenging external circumstances. Asset quality remains quite good; the number of clients we serve and accounts being opened continues to grow at a brisk pace, and the bank’s "pipeline" of new loans under consideration remains substantial. Our SBA lending operation remains extremely busy, much of which has been sold to other financial services companies yielding substantial gains to our bank. Total assets now exceed $135 million, and we are servicing approximately 3,000 deposit accounts.

Current interest rates are unusually low, wallowing in an unprecedented range for a really long period of time. I will stay out of the political arguments being made on either side of the aisle – but the net effect of this rate environment is beginning to take a toll on smaller banking companies. Tepid growth in the national and local economies has not generated enough new business for most banks to meet their internal growth projections, and many banks have chosen to aggressively "pirate" the business of their local competitors. As a result, loan rates continue to decline, and it is becoming impossible for small banks to reduce their funding costs by like amounts, because rates have already been squeezed so very low and cannot drop below zero. This results in compressed margins for most banks. To compensate for this, some banks have been buying investments that offer some yield but that also have a long duration, and some have also been extending their loan commitments farther out into the future. While those strategies may yield additional profit in the short term, the long-term effects of doing this could be negative; even catastrophic if taken to extremes, since these banks will have to fund these low-yielding loans and investments for a very long period of time when it is likely that funding costs will be much higher.

So – how does The Victory Bank cope with these conditions? Please remember that we are a values based company. Much of what we do is governed by the concept of fundamental fairness, as it applies to our clients, the bank, our communities and our team members. We continue to stress the value of a long-term relationship with a truly local institution. We realize that some prospective clients don’t care much about this, but many others realize that the bank’s ownership, management team and board of directors are local and are committed to this region. We consciously choose to focus our energy on these clients. We are available to meet with them in person, and to do more than just sell them something. Instead, we are here to understand our clients’ needs, to serve them faithfully, give them valuable advice, and to optimize their financial lives. In order to survive and thrive, the bank has to remain competitive with the marketplace, but also has to maintain a fair profit margin for the services and products we provide.

So far, we have managed to strike a fair balance between these sometimes competing pressures, and to steer the bank into safe and profitable waters. We expect that the next few years will remain extremely challenging, requiring unwavering commitment to efficiency and high-quality decision making by our senior management team and board of directors. We also believe that a steadily improving economy will slowly begin to generate more opportunities for all banks, and will hopefully relieve some of the intense pricing pressure the industry is experiencing.As a shareholder, client or friend of The Victory Bank, please keep in mind that the best thing you can do for the bank is to conduct your personal and professional business with us, and to refer us to everyone within your circle of influence. You can be confident that all of your referrals will be treated with fairness and respect, as if they were a member of our family.